DEDOCTION UNDER 80IB(10) ON ON- MONEY

[pawansingla]

The assessee is a builder. He sold all the flats at Rs. 25 lakhs each. On each flat sold, he took on-money of Rs.10 lakhs. He honestly entered on-money taken, in the account books and increased his profit accordingly. He is claiming 100% deduction u/s 80IB(10) on such on-money. Whether such deduction is allowable?

[JB]

as per my view - yes deduction is available. The illegality of consideration under civil law can not operate as a bar under income tax law for claiming deduction. There are judgments for that proposition. However, you have to prove that the source of the receipt is on money from the sale of units of eligible housing project. A mere contntion in this regard or disclosre in financial statements as such may not be enough. If you can not prove, the AO may treat it is income from undisclosed sources in which case the income can not be said to have been earned from the eligible housing project and consequently not entitled for deduction. The onus will be on assessee to prove that the incmoe is earned from the eligible housing project.

[pawansingla]

Kindly give me those citations which will help my case. I have enough proof to demonstrate that on money was taken from the units which are elgible for 80IB(10).What if Assessing Officers makes addition under 68/69 etc. Because business income has to be computed as per sec. 28 to 43D.

[JB]

sir kindly recall the Gujarat HC judgment in case of Fakir Mohhamad Haji Hasan (247 ITR 290). We had a discussion on the same few months back. In that judgment, the HC has observed that the moment the source of income is explained by the assessee, the income will not be a deemed income but it will fall under a particular head of income as prescribed in section 14. Therefore, if you can demonstrate that the on money was received from the said housing project, the A.O. is precluded from taxing the same as deemed income. Another judgment which may be helpful is supreme court judgment in case of T.A.quereshi (287 ITR ) wherein the assessee was allowed deduction of confiscated stock of illegal item. The SC observed that law is different from morality and cases are to be decided on the basis of legal principles and not on moral or subjective considerations. This principle equally apply in case of income with proper elaboration. Hence, if the A.O. accept that the on money was received from the eligible housing project, then he has to assesse the same as income from that housing project and there is no legal scope for him to deny the deduction as 100% of profits derived from eligible housing project is entitiled for deduction u/s 80IB as per plain language of the section. 

I am also having one such assessment on hand and i will revert back with few more decisions. In the meantime, i request that the possible grounds for rejection of deduction which are in mind may please be mentioned.

[naveen]

However, if such stand has already been taken in your case or if this stand is intended to be taken, the clients of the assessee who have paid the 'on money' would be exposed to the department for cash paid by them with corresponding tax and penalty obligations.

[JB]

Sir, that is correct. That is why i initially asked whether it is possible to convincingly explain the source. The thing is that it would be practically very difficult situation as a businessman.

[naveen]

I agree. But we can't have the cake and eat it too.

[JB]

Sir, sometimes it comes like heaven's fall where the cake and buiscuit both can be enjoyed simultaneously.